Capital One 2009 Annual Report Download - page 85

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Net adjusted charge-offs increased by $1.7 billion or 50.0% from 2007 to 2008. The net adjusted charge off rate increased from 4.23%
to 6.26%. The allowance for loan losses experienced a build during the year of $1.2 billion versus a build of $328.5 million in 2007.
The higher build was a result of the worsening economic environment at the end of 2008. The increase of net adjusted charge offs and
increase in allowance resulted in a $6.1 billion net provision for loan losses in 2008 an increase of $2.5 billion or 68.0% over 2007. On
the Domestic Card side, the start of the recession caused net adjusted charge-offs to increase to $4.3 billion, which is higher by $1.7
billion or 62.9% from 2007 to 2008. The allowance for loan losses experienced a build during the year of $1.1 billion versus a build of
$362.5 million in 2007. The increase of net adjusted charge offs and increase in allowance resulted in a $5.5 billion net provision for
loan losses in 2008 an increase of $2.4 billion or 80.0% over 2007. International Card experienced a decrease in net adjusted charge
offs of $26.1 million to $610.2 million in 2008. The underlying change, with no foreign exchange rate movements, reveals that charge
offs would have increased by $10.0 million. The onset of the recession in the U.K. in late 2008 caused the increase in charge offs. In
2008, the allowance for loan losses experienced a build of $37.8 million versus a release of $34.0 million in 2007. In total, the net
provision for loan losses in International Card increased from $602.3 million in 2007 to $647.0 million in 2008.
Non-interest expense was $4.4 billion for 2008 which is a decline of $408.7 million or 8.5% from 2007. Domestic Card’s 2009 non-
interest expense declined by $311.7 million or 7.9% from 2007 to $3.6 billion driven by risk related pullbacks in marketing as
efficiency improvements in operations. International Card non-interest expense declined by $96.9 million or 11.2% to $770.1 million
from 2007 to 2008. About $24.0 million of the decline was a result of exchange rate movements. Expenses have gone down due to
pullbacks in marketing and operating efficiency gains.
Table 22: Commercial Banking
As of December 31
(Dollars in thousands) 2009 2008
2007
Earnings (Managed Basis)
N
et interest income ............................................................................................ $ 1,144,388 $ 961,372 $ 931,227
N
on-interest income ........................................................................................... 171,548 144,227 127,029
Total revenue ..................................................................................................... $ 1,315,936 $ 1,105,599 $ 1,058,256
Provision for loan and lease losses .................................................................... 983,389 233,877 (27,844)
N
on-interest expense .......................................................................................... 660,777 480,983 384,733
Income (loss) before taxes ................................................................................. (328,230) 390,739 701,367
Income taxes (benefit) ........................................................................................ (114,881) 136,759 244,028
N
et income (loss) ............................................................................................... $ (213,349) $ 253,980 $ 457,339
Selected Metrics (Managed Basis)
Period end loans held for investment
Commercial and multi-family real estate ................................................. 13,843,158 13,303,081 12,414,263
Middle market .......................................................................................... 10,061,819 10,081,823 8,288,476
Specialty lending ...................................................................................... 3,554,563 3,547,287 2,948,402
Total commercial lending ............................................................... $ 27,459,540 $ 26,932,191 $ 23,651,141
Small ticket commercial real estate .......................................................... 2,153,510 2,609,123 3,396,100
Total commercial banking ........................................................................ $ 29,613,050 $ 29,541,314 $ 27,047,241
Average loans held for investment
Commercial and multi-family real estate ................................................. 13,857,522 12,829,870 11,905,715
Middle market .......................................................................................... 10,098,454 9,172,541 7,404,313
Specialty lending ...................................................................................... 3,566,693 3,595,866 2,923,702
Total commercial lending ............................................................... $ 27,522,669 $ 25,598,277 $ 22,233,730
Small ticket commercial real estate .......................................................... 2,491,123 3,115,436 2,669,621
Total commercial banking ........................................................................ $ 30,013,792 $ 28,713,713 $ 24,903,351
Loans held for investment yield ......................................................................... 5.02% 5.89% 6.98%
Period end deposits ............................................................................................ $ 20,480,297 $ 16,483,361 $ 14,876,726
Average deposits ................................................................................................ $ 17,571,740 $ 16,553,867 $ 17,413,678
Deposit interest expense rate.............................................................................. 0.81% 1.77% 3.07%
Core deposit intangible amortization ................................................................. $ 42,562 $ 38,979 $ 43,158
N
et charge-off rate(1) .......................................................................................... 1.45% 0.29% 0.05%
N
on-performing loans as a percentage of loans held for investment(1) .............. 2.37% 1.31% 0.30%
N
on-performing asset rate(1) .............................................................................. 2.52% 1.41% 0.32%
(1) Includes the Chevy Chase Bank acquired loan portfolio. See “Table I – Acquired Loan Reconciliation” for the period end and
average loans held for investment and metrics excluding such loans.